INTRODUCTION
India’s data centre ecosystem is evolving rapidly driven by policy interventions by the Central Government and various State Governments. The Central Government has enacted a national vision through infrastructure recognition and proposed national, while individual States have implemented competitive, incentive-driven regionalist policies to attract investments.
APPROACH OF THE CENTRAL GOVERNMENT
Recognizing the critical role of data infrastructure in the digital economy, the Central Government has undertaken several measures to promote the sector’s growth.
- Infrastructure Status
In October 2022, the Department of Economic Affairs, Ministry of Finance granted infrastructure status to the data centre sector under the category of “Communication Infrastructure”. Such classification has facilitated stakeholders to access long-term financing from domestic and international lenders on favourable terms, aligning the sector with other core infrastructure industries such as transport and power.
- Draft National Data Centre Policy, 2020
The Ministry of Electronics and Information Technology introduced the Draft Data Centre Policy (“Data Centre Policy”) in the year 2020, setting forth the Central Government’s strategic vision for promotion of data centres in the country. The Data Centre Policy has yet not been finalised or notified however, following elements will play a pivotal role in promotion of setting up of data centres in India:[1]
- Ease of Doing Business: The Data Centre Policy proposes implementation of a single window clearance system to rationalise regulatory clearances required for setting up data centres and approval of clearances in a time bound manner;
- Pre-Provisioned Data Centre Parks: It is proposed that the states will be encouraged to demarcate specific land parcels with proper civil infrastructure, facilitating a “plug and play” model for data centre providers. Further, the Data Centre Policy aims at enactment of a Data Centre Incentivization Scheme (“DCIS”) by the Central Government to specify the intended beneficiaries, applicability criteria and fiscal and non-fiscal incentives for the sector;
- Data Centre Economic Zones (“DCEZ”): Setting up of at least four DCEZs equipped with reliable information technology and non-information technology infrastructure, connectivity and a reliable power infrastructure; and
- Declaration of Data Centres as Essential Services: The Data Centre Policy proposes classification of data centres as essential services under the Essential Services Maintenance Act, 1968 (“ESMA”), which will ensure seamless continuity of services even during times of calamities or crisis.
During recent deliberations on the draft Data Centre Policy, the Central Government has further proposed to implement following incentives:[2]
- Tax Holiday: Tax holiday to promoters of data centres have been proposed for a period of up to 20 (Twenty) years provided certain prescribed targets for capacity, efficiency and employment are met;
- Incentive under Central Goods and Services Tax Act, 2016: Availability of Input Tax Credit (ITC) has been proposed on the goods and services tax levied on construction material, cooling systems, heating, ventilation and air conditioning systems, and electrical equipment; and
- Grant of Permanent Establishment Status: Granting of a permanent establishment status to foreign entities leasing or operating data centres with at least 100 (One Hundred) Megawatt capacity has been proposed.
- Recommendations by the Telecom Regulatory Authority of India (“TRAI”)
In the year 2022, the TRAI proposed the following recommendations reinforcing the objectives of the Data Centre Policy:[3]
- Formalization of the DCIS to prescribe central fiscal and non-fiscal incentives;
- Establishment of a National Single Window System (NSWS) to facilitate time bound single window clearances with provision for deemed approval after elapse of prescribed timelines for non-critical category permissions;
- Setting up of Cable Landing Systems (CLS) for coastal states;
- Promotion of green and renewable energy usage by data centres; and
- Easing up of regulatory framework for grant of Internet Service Provider (ISP) license to Interconnect Exchange Providers.
Incentives linked to Special Economic Zones (“SEZ”)
For data centres proposed to be set up within SEZs, such data centres shall, inter alia, benefit from the following incentives as per the provisions of the Special Economic Zones Act, 2005:
- Duty-free import and domestic procurement of goods;
- Exemption from customs and excise duties;
- Zero-rating of supplies under the Integrated Goods and Services Tax Act, 2017; and
- Exemptions from levy of income tax on profits earned from export of services subject to the sunset clause effective from April 01, 2020.
STATE-LEVEL POLICIES: COMPETITIVE FEDERALISM IN ACTION
In parallel, various State Governments have launched specialized data centre policies, each offering tailored fiscal and non-fiscal incentives to attract investment.
MAHARASHTRA
The Government of Maharashtra enacted the New Information Technology and Information Technology Enabled Services Policy of Maharashtra State, 2023, which, inter alia, provides the following incentives for data centres:[4]
- New and existing data centres registered with the Directorate of Industries, Government of Maharashtra have been permanently exempted from payment of electricity duty;
- A total exemption from payment of stamp duty for purchasing land for set-up of new data centres and for expansion of existing data centres has been provided;
- A single window clearance system for regulatory approvals has been recognised under the name of “MAHITI” portal;
- The activity of operating data centres has been recognised as “Essential Services” under ESMA; and
- Development control regulations for enhancement of infrastructure have been relaxed for data centres.
UTTAR PRADESH
The Government of Uttar Pradesh implemented the Uttar Pradesh Data Centre Policy, 2021, which targets establishment of data centres with a 250 (Two Hundred Fifty) Megawatt, provides the following benefits:[5]
- Data centre parks with a capacity for setting up data centres with a 40 (Forty) Megawatt (“Data Centre Parks”) have been provided with land subsidy up to 50% (Fifty Percent) in select regions;
- A total stamp duty exemption has been provided for transfer of land to Data Centre Parks and a 50% (Fifty Percent) stamp duty exemption has been provided for transfer of land from Data Centre Parks to data centres;
- Data centre units are eligible for a 7% (Seven Percent) capital subsidy up to INR 20,00,00,000 (Indian Rupees Twenty Crores) on fixed capital investment excluding land and building;
- A total exemption on electricity duty for a period of 10 (Ten) years post commencement of operations has also been provided; and
- Upon filing of self-certifications, data centres have been exempted from inspections under various labour laws.
KARNATAKA
The Karnataka Data Centre Policy, 2022-2027 provides the following incentives to entities establishing data centres and having registered offices in Karnataka:[6]
- A complete exemption has been provided on electricity duty for a period of 5 (Five) years from the date of commencement of commercial operations;
- A 10% (Ten Percent) land subsidy, for an amount not exceeding INR 3,00,00,000 (Indian Rupees Three Crores) has been provided on purchase of land outside Bengaluru Urban district, for an area not exceeding 10 (Ten) acres;
- A 100% (One Hundred Percent) stamp duty exemption for purchase of land for an area up to 10 (Ten) acres outside Bengaluru Urban district has been provided; and
- A single window clearance through the “Karnataka Udyog Mitra” has been established.
TAMIL NADU
The Tamil Nadu Data Centre Policy, 2021 provides the following incentives to data centres:[7]
- A complete subsidy on electricity tax has been provided to data centres for a period of 5 (Five) years from the date of commencement of commercial operations;
- 50% (Fifty Percent) to 100% (One Hundred Percent) stamp duty concessions have been provided for purchase of land in specified districts;
- 50% (Fifty Percent) land subsidy has been provided for purchase of land in specified districts for an area up to 10 (Ten) acres subject to a cap of INR 2,00,00,000 (Indian Rupees Two Crores);
- Upon filing of self-certifications, data centres have been exempted from compliances under various labour laws; and
- A single window clearance for regulatory approvals has been established.
TELANGANA
The Telangana Information and Communication Policy 2021-2027 grants various incentives for establishing data centres which, inter alia, include the following:[8]
- Allotment of Government land and grant of rebate on land cost;
- Incentives on payment of stamp duty, transfer duty and registration fees have also ben granted; and
- A general incentive in the nature of power subsidy has been provided.
GUJRAT
The Gujrat Information Technology and Information Technology Policy 2022-2027 grants the following incentives:[9]
- A capital expenditure support of up to 50% (Fifty Percent) has been granted for standard projects for an amount up to INR 50,00,00,000 (Indian Rupees Fifty Crores) and INR 200,00,00,000 (Indian Rupees Two Hundred Crores) for mega projects (having gross fixed capital investment equal to or more than 250,00,00,000 (Indian Rupees Two Hundred Fifty Crores);
- A operational expenditure support up to 15% (Fifteen Percent) is provided for standard projects for an amount up to INR 20,00,00,000 (Indian Rupees Twenty Crores) and INR 40,00,00,000 (Indian Rupees Forty Crores) for mega projects; and
- Cable landing stations are entitled to a power tariff subsidy of INR 1 (Indian Rupees One) for a period of 5 (Five) years.
HARYANA
The Haryana State Data Centre Policy, 2022 provides the following incentives:[10]
- A complete reimbursement of stamp duty on purchase of land for setting up data centre parks and data centres has been granted;
- Data centre centres have been granted a complete exemption from electricity duty for a period of 20 (Twenty) years from the date of commencement of commercial operations;
- Power bill reimbursement up to 25% (Twenty-Five Percent) for a period of 3 (Three) years from the date of commencement of commercial operations has been provided; and
- The activity of operating data centres has been recognised as “Essential Services” under ESMA.
CONCLUSION
The draft Data Centre Policy of the Central Government and policies implemented by various State Governments provide a promising ecosystem for setting up of data centres in the country by providing various incentives and benefits. Across jurisdictions, several trends emerge:
- Essential Service Status: Ensures uninterrupted operations even during calamities or crises;
- Single-Window Mechanisms: Eases application and approval process for grant of regulatory approvals;
- Fiscal Incentives: Substantial subsidies on land, capital, and stamp duty reduce upfront costs to be borne by data centre developers; and
- Power and Energy Incentives: Power and energy duty waivers promise higher returns for data centre developers.
[1] https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1877179
[2] https://maitri.mahaonline.gov.in/pdf/IT%20Policy%202023.pdf
[3] https://invest.up.gov.in/wp-content/uploads/2021/09/DC-Policy-2021-Eng-final_page-f.pdf
[4] https://eitbt.karnataka.gov.in/it/public/uploads/media_to_upload1727071046.pdf
[5] https://it.tn.gov.in/sites/default/files/2021-11/Connect%20BOOK.pdf
[6] https://rich.telangana.gov.in/assets/pdfs/Resources/Telangana-State-2nd-ICT-Policy-2021.pdf
[7] https://dstpolicy.gujarat.gov.in/public/assets/itpolicy/document/GR-IT-Policy-2022-2027.pdf
[8]https://cdnbbsr.s3waas.gov.in/s35352696a9ca3397beb79f116f3a33991/uploads/2022/07/2022071110.pdf.
[9] https://www.nitiforstates.gov.in/public-assets/Policy/policy_files/PNC510C000384.pdf
[10]https://www.moneycontrol.com/news/business/india-may-grant-20-year-tax-exemption-gst-credit-to-supercharge-data-centres-report-13545403.html
